Should I invest in Sundial Growers stock?

By: Stanko Iliev
Stanko Iliev
Stanko dedicates himself to providing investors with relevant information they can use to make investment decisions. He loves the… read more.
on Feb 2, 2021
  • Sundial Growers shares have exploded in January
  • Revenue for the third quarter of 2020 has decreased by 36%
  • The current stock price does not represent a good value for long-term investors

Sundial Growers (NASDAQ: SNDL) stock has advanced more than 150% since the beginning of January, and the current price stands around $1.03. The current share price does not represent a good value for long-term investors, but it could advance even more in the ongoing bull market.

Fundamental analysis: Revenue for the third quarter of 2020 has decreased by 36%

Sundial Growers engages in the production, distribution, and sale of cannabis products for the adult-use market; the company was incorporated in 2006 and is headquartered in Calgary, Canada. Sundial Growers shares have exploded in January, and if you decide to buy shares, you should use a “stop-loss” order because the risk is very high.

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There is no other reasonable explanation for this jump, and many analysts agree that the community from the WallStreetBets forum influenced this price move. Sundial Growers is expanding into new Canadian markets with new products, but the company’s fundamentals remain weak.

The company reported that cannabis revenue for the third quarter of 2020 has decreased by 36% over the second quarter of 2020.

“While our third-quarter revenue decreased, we are pleased with the demonstrated improvement in operating discipline, successful cost optimization initiatives, and a material reduction of our debt. We faced some challenges with our cultivation processes this past quarter, but the modular nature of our indoor facility enabled Sundial to quickly adapt to rapidly evolving market conditions and consumer preferences in today’s Canadian cannabis market,” said Zach George, Sundial’s CEO.

If we compare the total stockholders’ equity of $170M and $1.3 B’s market capitalization, we can notice that this stock is a high-risk investment. Book value per share is only $0.26, and despite there are many rumors, that this company represents an interesting investment opportunity.

Technical analysis: Bulls remain in control of the price action

Sundial Growers stock has weakened this Tuesday by more than 15% after pricing its underwritten registered offering of 60.5M Series A units and 14M Series B units. Each series unit will be sold at $1.00, and the offering should close on Thursday, February 04.

Data source: tradingview.com

The critical support levels are $1 and $0.80; $1.20, $1.40, and $1.50 represent the resistance levels. If the price jumps above $1.20 resistance, the next target could be around $1.40, but if the price falls below $0.80, it would be a firm “sell” signal and probably a sign of the trend reversal.

Summary

Sundial Growers could increase its revenue once the public economy reopens, but with 1.3B market capitalization, shares of this company remain expensive. The company operates only in Canadian provinces because the United States does not have national legalization. Sundial Growers shares have advanced from $0.54 above $1.22 last month, and the current price stands around $1.03. Sundial Growers’ shares could advance even more, but the risk/reward ratio is not good for long-term investors.

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